Credit markets took a breather last week from the adverse performance it had been registering since the begging of October as High Yield markets across both sides of the Atlantic posted positive gains for the week. Spreads tightened, albeit marginally, as the higher beta sectors and risky assets were back in demand as the risk-on mode/trades began to trickle in, early on in the week. This timid rally was welcomed by the risky investors who had gone weeks on end without witnessing any form of positive signals which could alter market sentiment.

Bottom fishers emerged as, at least temporarily, as the bout of negativity, both in terms of performance and sentiment was halted and reversed. Having said that, spreads are still a far cry away from where they were in the beginning of October, let alone the beginning of the year, but nevertheless, some positives did emerge from market activity last week, though it must be said that we cannot see any triggers which could propel spreads back to where they were, bar any major surprising deal between the US and China. If history is anything to go by, credit spreads have generally remained marginally unchanged, possibly tighter in the last 2 months of a calendar year and January has been benign for credit in recent years. With investors looking to shift their current cash allocations within their portfolios and the uncertainty which still prevails, it is now more cumbersome than ever to predict were credit spreads could end the year.

2018 was anything but plain sailing for both the risky and risk adverse investor, and the larger part of the issues which characterised the year (in a negative way) look nowhere to be close to being solved. US trade wars. Italian budget impasse. Brexit uncertainty. Global economic slowdown. All these factors coupled with a gradual termination of accommodative monetary policies by the world’s leading central banks have lead credit spreads to remain vulnerable for most of the year, with this vulnerability persisting possibly in the first half of 2019.

As we wake up to our trading screens this morning, equity markets are somewhat supported after yesterday’s weak action across the globe, particularly late last night in the US. With Brexit talks on going and the Italian budget stalemate being the key events to keep us tightly glued to our screens, uncertainty, both in terms of sentiment, market direction and political outcomes continue to weigh on markets. On the data front, it is expected to be a pretty quiet week, with CPI figures for October for the Eurozone and the US being the key data prints, with the on-going political uncertainty in the UK and Italy this week overshadowing any other meaningful event, even earnings season across both sides of the pond.